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If there is a melt-down in stocks, where would you run to?
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There is a massive wave of investment on the Nigerian stock market and there is no reason why not, the market delivered returns of 75 percent last year. This is a craze ignited by the banking consolidation of 2004 but there are fears that a melt down is lurking, a reason why you must diversify.
It makes sense to spread your investment and it makes more sense to put a part of it where the risks are less and where they are within reach, literally at your beck. The money market provides such liquidity.
Apart from the liquidity provided by the money market, it is also ‘risk free’. That risk free rate can work to your advantage in a diversified portfolio; it helps to lower the risk of investment.
This is not only proven theoretically by finance icons such as Harry Markowitz and his former student and Nobel Prize winner, William F. Sharp but has been an invaluable tool of financial planners, advisers and portfolio managers all over the world.
Such is the power of a money market instrument. Now you can deploy that power to work for you.
In Nigeria, the market is narrow covering mainly instruments like Treasury Bills and Treasury Certificates.
Now what are Treasury Bills and Treasury Certificates? According to the Money Market assoctaion of Nigeria, It is a marketable, short-term (90days – 1 year) government debt security issued by the Central Bank. It is fully re-marketable at a discount from face value.
Please note that single individuals are not required, by law, to play the market. You can do that by the intervention of licensed operators (see table). They are called dealers.
A dealer, the Money Market Association describes as an institution licensed by the CBN for the purpose of trading in money market instruments for its own account or on behalf of individual and institutional investors.
How it is different from the capital market
The major difference between the money and the capital market is in tenure; while the money market assets mature within a year, the capital market needs a year. While in the stock market you are buying a piece of a company, the money market is designed for buying a piece of government, ala central bank instrument.
It makes sense to spread your investment and it makes more sense to put a part of it where the risks are less and where they are within reach, literally at your beck. The money market provides such liquidity.
Apart from the liquidity provided by the money market, it is also ‘risk free’. That risk free rate can work to your advantage in a diversified portfolio; it helps to lower the risk of investment.
This is not only proven theoretically by finance icons such as Harry Markowitz and his former student and Nobel Prize winner, William F. Sharp but has been an invaluable tool of financial planners, advisers and portfolio managers all over the world.
Such is the power of a money market instrument. Now you can deploy that power to work for you.
In Nigeria, the market is narrow covering mainly instruments like Treasury Bills and Treasury Certificates.
Now what are Treasury Bills and Treasury Certificates? According to the Money Market assoctaion of Nigeria, It is a marketable, short-term (90days – 1 year) government debt security issued by the Central Bank. It is fully re-marketable at a discount from face value.
Please note that single individuals are not required, by law, to play the market. You can do that by the intervention of licensed operators (see table). They are called dealers.
A dealer, the Money Market Association describes as an institution licensed by the CBN for the purpose of trading in money market instruments for its own account or on behalf of individual and institutional investors.
How it is different from the capital market
The major difference between the money and the capital market is in tenure; while the money market assets mature within a year, the capital market needs a year. While in the stock market you are buying a piece of a company, the money market is designed for buying a piece of government, ala central bank instrument.
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